Getting the Most Out of Your Personal & Business Credit to Protect Your Business Assets

There’s a reason why accounting is one of the main disciplines taught in business school. It’s similar to the reason why businesses of all sizes as well as individuals make budgets. It’s important to keep track of where your money has and will go in order to use it wisely.

Unfortunately, most of the roughly 80% of small business owners who use credit cards for funding are exposed to unpredictable credit card interest rate increases and therefore cannot allocate their money with any real confidence.

There once was a time when credit card companies could change your interest rate at any time, for any reason, no matter what type of credit card you were using. But since the CARD Act – a major financial reform law – took effect in February 2010, this has only remained a concern for people using small business credit cards. For everyone else, issuers can now only increase the interest rates applied to existing debt if the cardholder is 60 days or more delinquent in making a payment.

You see, even though business credit cards are consumer-based financial products at their core, in that usage information will be included in your personal credit reports and you’re still often held personally liable for debt, they were excluded from the protections of this law. It simply appears that the lobbying efforts of credit card companies outweighed the benefit of giving job creators protections that everyone else now takes for granted.

Even so, the very thing that makes for a confusing application of the CARD Act creates an opportunity for small business owners to avoid cost-of-debt surprises. The opportunity lies in being able to get the best out of both personal and business credit cards and thus create the most ideal short-term financing environment for your business.

Business credit cards can be used to maintain the financial and operational health of your business and in most cases should not be completely avoided. But what you do want to avoid is getting stiffed by the credit card companies. One strategy to consider is using a personal credit card during the introductory promotional period alongside your business credit card.

For example, if you have above average credit, you can use a personal 0% credit card for funding and thereby give your company what regulators would not. Just make sure to either pay off your balance or transfer it to a 0% balance transfer card before the introductory period ends and the higher interest rates take effect. If you have a more limited credit history, you should get the card with the lowest interest rate that you can qualify for.

This strategy has several benefits, namely:

Business credit cards offer special business-friendly features. Business credit cards offer a number of important and unique features, including: the ability to set customized spending limits for employees, centralized rewards earning for all company purchases, enhanced expense tracking and management, and better rewards as compared to personal credit cards.

Take advantage of better terms. There’s an inevitable trade-off when it comes to credit card terms. If a particular card offers market-best rewards, you can bet it won’t have the longest 0% introductory APR, and vice versa. Together, two credit cards can help you maximize as many benefits as possible.

Grace Period Concerns. You should not use the same credit card to both revolve debt and make new purchases because it will cost you in finance charges. When revolving a balance, you no longer have a grace period for new purchases, which means those you make will begin accruing interest immediately, rather than at the end of the month.

Ultimately, a two-card strategy involving the use of a rewards business credit card for everyday expenses and a no interest or low interest personal credit card for short-term financing can be a savvy financing strategy for small business owners. The benefits range all the way from a consistent, accurate perception of your debt to an influx of free money, garnered via better rewards and lower interest costs. Of course, the ultimate result will be a business that is in a better position to succeed, and that’s what we’re all working toward.

Comments

This is slightly terrifying in that starting a business is risky and there are no guarantees you’ll be able to pay everything off — but it does sound like floating your credit between business and personal credit cards is a great strategy.

One question though — does the corporate veil protect an individual from having to pay back a debt on an individual credit card, if the charges were used for a business that provides limited liability?

Business credit is very important to me as a small business owner. I was able to secure a very good line of credit from Connexx, and they can be found here: http://www.connexx.com/businesscredit.html
It’s a recommendation to anyone who is starting a business.

Based on this article at nolo.com, it seems that you would be held personally liable for charges made to you personal credit card even if your business is structured as an LLC. I would check with an accountant/lawyer though to find out the details.

When managing business credit cards, there are some tried and true rules to keep in mind. The first and foremost is to avoid mixing business with personal expenses. This could cause a host of tax issues and issues with money management.